You’ve made the right choice to take out protection - it’s important to ensure that if your income was removed from the household, you can limit the level of financial stress on your family.
It is especially important when you look at some of the statistics from last year, with £6.2 billion in protection claims being paid by the insurance industry. This included over 16,800 critical illness claims, with cancer continuing to be the highest cause of critical illness.
So, here are a few things to consider when thinking about how much you want to leave for your family:
- Where do you live?
- What debts do you have
- What level of financial support is needed for your partner/spouse?
- Do you have any children?
- Do you want to cover your funeral?
1. Where do you live?
Whether you have rented accommodation or have a mortgage for your home, one of the important things is to ensure that your family can keep a roof over their heads. There will be enough on their plates when you are gone, without the additional stress having to move will cause.
If you have a mortgage, what type of mortgage is it, how much is left to pay and for how much longer do you have to pay it?
In January 2020, the average mortgage debt in the UK has been estimated at £132,242 . If you’ve recently bought your house then it’s likely to be more, especially as the average house price reached £231,185 (January 2020).
You’d need to determine whether you’d want to pay this off in one lump sum or on a monthly basis. If the latter, you may need to consider any re-mortgaging costs.
The average rent in the UK is £953 per calendar month. Of course, this varies by location in the UK – in Greater London averages are at £1,627 with the rest of the UK (excluding London) at £793.
2. What debts do you have?
Take stock of what other debts you have, which could be a car loan or even an outstanding balance on a credit card. According to the TUC, the average UK household unsecured debt now stands at £14,540, covering credit cards, banks and other lenders (January 2020). This amount has increased over the years, which is said to be a result of public spending cuts and wage stagnation. Whilst it’s important to pay off your debts, you cannot be sure that you will ‘go’ debt free.
3. Support a spouse/partner
Many insurance companies assume that if you have a partner, they will require four times your annual income to support them. This of course can be changed to the amount you require, if any. Make sure you are aware of any company benefits that you may have and also the level of sickness cover – so that you are not paying for a benefit that you already have.
According to the Child Poverty Action Group 2020 report, the additional full cost that a child adds, over 18 years to a household, has been calculated at just under £153,000 for a couple and over £185,000 for a lone parent. This is once the childcare is taken into account. As a couple, the average additional cost per year is £7,827 for the first child, £9,144 for the second child and £9,709 for the third child. These amounts increase to £10,811, £9,789 and £8,865 respectively in the case of a lone parent.
When it comes to higher education, you need to be aware of the yearly tuition fees, which are currently £9,250 for an undergraduate degree. You can alter this amount to include living costs or deduct tuition fees if you live in Scotland, Wales or Northern Ireland and your child goes to a local university. If you hope to pay for their full university costs, you will also need to consider their living expenses, costs of books and social expenditure.
5. Funeral Costs
This is not a nice thing to consider, but with the average cost of a basic funeral in the UK sitting at over £4,400 in 2019, then it’s something that you may wish to add to your life insurance cover. It’s even more when you consider that the average amount spent on the send-off is over £2,300 and that the average amount spent on professional fees is over £2,700 – so the total cost of dying could be over £9,400.
Now you’ve had a chance to think about the level of cover you are looking for, you can begin. Most companies will want to know a few personal details up front, such as your age, health and whether you have smoked. And remember, make sure you don’t double up on cover!
How can Foresters Financial help?
Our Financial Advisers will be able to visit or call you at your convenience. They will be able to help you determine the level of cover you require to suit your needs and will be on hand as your financial circumstances in life change. Your Financial Adviser will go through your protection options and explain the application process and arrange an appointment with MorganAsh who will underwrite your Plan. These is no charge for protection advice. Request a Financial Adviser >
We offer access to a Peace of Mind service if you have a Protection Plan in place with us. This free specialist advice service is staffed by experienced nurses who are on hand to provide expert help and guidance should the worse happen. Additionally, a partner and/or children will also be able to access the bereavement counselling service, with up to six sessions at no cost.
However, please note the Peace of Mind service is not regulated and is a non-contractual benefit. It is not part of the Protection Plan Terms and Conditions, so may be amended or withdrawn at any time.